Natalie Jilted Boyfriend

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF NEW YORK

lure:

TONI F. NATALIE

Debtor.

KEITH RANIERE

vs.

TONI F. NATALIE

Plaintiff

Defcndant

APPEARANCES:

Dwyer & Dribusch, LLP
Attorneys for the Debtor
350 Northern Boulevard, Suite 1 02
Albany, -NY 12204

Cutler, Trainer & Cutler, LLP
Attorneys' for Plaintiff
2 Hemphill Place, Suite 1 53
Malta, NY 12020

Whiteman, Osterman & Hanna
One Commerce Plaza
Albany, NY 12260

ENTERED ON DOCK

1NH1ALS:

Case No. 9946195
Chapter 7

Adv. Proc.No. 01-90027

Christian H. Dribusch, Esq.

James P. Trainer, Esq.

Leslie Apple, Esq.

Hon. Robert E. Littlefield, Jr., US. Bankruptcy Judge

Memorandum-Decision & Order
The matter before I jse court is the objection to discharge filed by Creditor Keith Rani ere
CTlaintiff*). The court ha; jurisdiction over this core proceeding pursuant to 28 U.SX-
§§ 157(a), 157(bXl), 157(o)(2XJ) and 1334(b).

Facts

Based on the documents filed in the Debtor's case and the testimony and exhibits

admitted at trial, the court
The Debtor filed a
Place of Creations, Inc. (*

finds the following:

Chapter 7 petition on October 27, 1999. National Health Outlet A
-IHO"}, a corporation owned by the Debtor, also filed a Chapter 7

Guarantor purchases" and

petition on that date, Gregory Harm, Esq. was appointed the trustee in each bankruptcy case.

On her Schedule F (Creditors Holding Unsecured Nonpriority Claims),, the Debtor states
that she owes the Plaintiff 52,000 for "1996-99 property claims." Her Schedule F lists a claim
for Albany Restaurant in t le amount of $46,800.09; it also states the debt was for "1999

that a codebtor exists. The codebtor listed on the Debtor's Schedule H
(Codebtors) for the Alban ] t Restaurant debt is NHO. NHO's Schedule H lists the Debtor as a
codebtor on the Albany R staurant debt Neither the Debtor nor NHO lists Albany Restaurant on
its Schedule G (Executory Contracts and Unexpired Leases).

Both the Debtor's ind NHO's Schedules F also state which unsecured nonpriority claims

are subject to setoff; they
Lake Corporation, Adyan.1
Corp. (Sanwa), GE Capil

: remarkably similar. The Debtor's Schedule F lists the claims of 10
i Leasing Services, American Express Centurion Bank, Fleet Leasing
GE Capital Colonial Pacific Corp., PC Information Leasing Corp.
and Southeastern Leasing J 5; Equipment Corporation. NHO's Schedule F ! lists Copelco Capital,
Inc., GE Capital, GE Capital Colonial Pacific Corp., IFC Information Leasing Corp. and
Preferred Capital Corporal |ons as creditors having claims subject to setoff.

In response to Sch« jdule B's (Personal Property) question 5, the question which asks what

a

"NHO's Schedule 1 is missing page 1 .

books, pictures, art objectf, etc, a debtor owns, the Debtor checked the box labeled "NONE." On
the amended Schedule B sfce filed on April 21, 2000, however, she states she owns "Paintings,

Prints, Posters" worth $1,1 00, She lata - testified at one of her depositions that the $1,100 value

I

included her son's pamthi| and posters and prints and that the frames were worth more than the
actual graphics themseh

During her depositions, Michael Rudin, Esq,, the Debtor's former bankruptcy attorney, 1

often commented about hi
presented the portrait to b
denied that she had pievio
the Debtor signed on J ami
artwork J had consisted of
ail of which were sold in 1

Schedule B amendment, particularly her belief that the artist
■ son as a gift (See Ex. 5 pp. 66-67.) However, at trial the Debtor
isly testified the painting belonged to her son. (Tr. 90.) In an affidavit
> 28, 2000 and later filed with the court, the Debtor stated, "All the
t worth no more than Five Hundred and 00/100 Dollars ($500.00),
?98 to pay my medical expenses." Whenever asked under oath if she
ever had an appraisal of the artwork done, she answered she had not.

On her Schedule BJ the Debtor also listed an ownership interest in Blue Crystal LLC and
Hi-Step Enterprises, inc. During her depositions, she testified she was at least a part owner of

both entities and both operated pizzerias.

~ 1

Both the Debtor an«jl NHO had a section 341 meeting of creditors scheduled for

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December 13, 1 999. The Debtor attended the meeting as an individual in her own case and in
her capacity as a corporate jpfficer of NHO in the corporation's case. 3 Several individuals

^Christian H. Dribu^ch, Esq., was substituted as attorney for the Debtor in this adversary
proceeding on June 12,20Qjl.

I

J At trial, the court r|ceiyed the transcript of the 341 meeting into evidence for
impeachment purposes only. (Tr. 99.)

attended the meetings, including the Trustee and her former counsel. An attorney for one of the
creditors asked the Debtor a series of questions regarding transfers "in the last six years." (Ex.
28 pp. 14-15.) 4 During th; t line of questioning, Rudin interrupted the creditor's attorney and
asked him questions like "of what vahie?" and "without value or for value?"

When the Trustee conducted his due diligence, including reviewing tax returns and
corresponding with or otherwise interviewing third parties, be used documentation the Debtor
produced. He ultimately filed a no distribution report in each case and NHO's case was closed.
Later, the Trustee reopened that case to provide the Debtor's business associate, Nancy Saltan an
("Saltan an"), with an opportunity to purchase the Debtor's interest in five or six of the business
entities she disclosed in beV schedules. Sal tan an never made an offer so the Trustee closed the
corporation's case again.

The Debtor attended high school until the ninth grade. Prior to her business and personal
involvement with the Plaintiff, the Debtor sold fruit baskets out of her home. The Plaintiff and
an associate of his named Karen Unterreiner helped the Debtor form numerous business entities.
He prepared many of the documents submitted to third parties by the Debtor; he also assisted in
acquiring equipment

In March or April li999, the Debtor and Plaintiff's personal relationship ended.
Thereafter, he began harassing her and otherwise disrupting her business to the point where she
hired Rudin. At trial, the Plaintiff did not controvert the Debtor's testimony that his influence
over her caused her to surrender her adopted son to her ex-husband. ~*

i month prior to filing for bankruptcy protection, the Debtor closed

Approximately one

4 The court admitted

Exhibit 28 for impeachment purposes only. (Tr. 99.)
4

NHO and secured the equipment in the building it leased from the landlord. When the Debtor
visited the site more than i year later, she noticed much of the equipment NHO had leased
remained there and was being used by the current tenant She neither took the equipment nor

sold any of it NHO has disclosed in its Statement of Financial Affairs, however, that certain

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small restaurant equipment was sold to Zylos, Inc. and the proceeds were used to pay sales taxes.
An employee of JJjC, an equipment lessor, corroborated the Debtor's testimony that the landlord
was in possession of the equipment post petition. (Tr. p. 42,) An employee of Qiiiktrak, a
company that does onsite inspection and inventory verification, testified that he personally saw
up to 75% of the equipment the equipment lessors were looking for on the premises. (Tr. p. 59.)
Salzman filed a section 523 adversary proceeding* against the Debtor and requested

certain documentation froib her and NHO. No one has challenged the Debtor's testimony that

* I

she provided approximately 33 banker boxes of records. The boxes contained persona] checks,
business checks, bank statements, credit card statements, tax returns, corporate books,
Quickbook reports and lea se agreements. The Debtor was unable to provide the computer
records she kept for the various corporations she owned doe to a computer virus. None of the

Salzman have been returned.

999, Hi-Step Enterprises, Inc., a non-debtor corporation the Debtor
owns, sold certain assets, including the name "Mr. Shoes Pizza," to Zylos, Inc., an entity
operated by the Debtor's rr. other, Joan Schneier. The Debtor's brother ran Hi-Step's day to day
operations. The proceeds were allegedly used to pay Hi-Step's tax obligations although no one

documents she provided.tc
On September 15,

3 Ms. Salzman was i ^presented by the law firm of Whiteman, Osterman & Harm a. An

attorney from that firm, Mr!
proceeding. (Tr. 4.)

Leslie Apple, "assisted" the Plaintiffs attorney in this adversary

offered any other evidence supporting or challenging that. The Debtor, in a January 28, 2000
affidavit, swore, "Hi Step never owned the name Mr. Shoes Pizza." (Ex. 7 1 12e.)

According to Schneier's testimony and a promissory note dated June 30, 1998, on or
around June 30, 1998, more than one year prior to filing, she received artwork from the Debtor
after paying her approximately $1 0,000. Both Schneier and Gerald P. Dagostino, CPA., signed

the note as witnesses. At frial, Dagostino testified that he did not recall signing the document but

I

his usual business practicejrwas to sign documents on or near the date reflected on them. The
document itself is confusing. Although it purports to be Ms. Schneier's written promise to pay
the Debtor $1 0,000 for artwork, pictures and paintings, the Debtor signed the document as a
guarantor.

Confusing the artwork sale matter more is a transcript of the Debtor's November 1 5,

' I

2000 deposition. She testified she intended to sell her the artwork, then analogizes the
transaction to the second rjiortgagc her mother had obtained on the Debtor's house. Later on she
testified that if the payments provided for in the agreement had been made, her mother would not
have had any right to the artwork because the Debtor would not have owed her any money, but
then stated she did not know if the artwork was the security for the payment of her debt to her

* L •

mother. (See Ex. 6 pp. 64-D66.)

i

S chneier testified the Debtor used the $ 1 0,000 to pay for surgery the Debtor needed to

■ I

lessen the harmful physical effects resulting from a damaged silicon implant and to keep her
business afloat during her recovery. She also testified she did not have sufficient rdoTn in her
home initially to take possession of the artwork. Prior to moving to Rochester and after her
husband recovered from a heart attack, Schneier had the artwork removed from the Debtor's

Plaintiff's harassment of.

the Plaintiff sent police to

residence with the help of family and friends. Once she took possession of it, she retained ft.
One part of Schnej er's testimony the court found disturbing was her description of the
er and her family, including the Debtor. Schneier recounted the time
her house and the numerous occasions be threatened her and hex

family on the phone. The only other aspect oTthe Plaintiffs case in chief worth noting is his

I

Exhibit 13, particularly the document captioned "Preferred Capital 'Schedule A*" ("P.C
Schedule A"). The P.C. E chcdule A states it is a lease between Preferred Capital Corporation
and National Health Network, Inc, and lists the equipment it covers, including a 2-door freezer
and 3 -door cooler from Albany Restaurant

ncl

Before the trial concluded, the court read a quote from its Raymonda* decision. In doing
so, it intended to emphasi :e the heavy burden placed upon a party objecting to a discharge and to
comment on what it perce ved as a lack of proof regarding the Plaintiff's section 727(aX2) and
section 727(aX4) causes of action. (See Tr. 215-217; 220-221.)

Arguments

In his opening brief, the Plaintiff contends the Debtor should be denied a discharge
pursuant to 1 1 U.S.C. § -727(a)(4) for knowingly and fraudulently making a false oath or account
regarding the existence, ownership, possession and value of artwork, some restaurant equipment,
the "Mr. Shoes" trade name and the oil painting called "Michael." He asserts she did not list the
art as a secured debt on the bankruptcy petition so she could remove the collection from the
court's purview and purchase it back at any time. The Plaintiff goes on to state theTSebtor is a
beneficiary under her mother's will and stands to inherit the art back; he references his

'Case No. 00-900(50, Adv. Proc. No. 99-91 199 (Banter. NJD.N.Y. 2001).

7

"Appendix D - "Secret B> befit." In that document, he recites a part of the Debtor's November
1 5, 2000 deposition where she testified she was a beneficiary under her mother's life insurance

policy.

The Plaintiff also

i isserts the Debtor should not receive a discharge based on 1 1 U.S.G

§ 727(a)(3) for concealing information or failing to preserve recorded information regarding her
financial condition or buspess transactions, particularly the value of her art collection. He also
argues a denial of her disc barge is warranted pursuant to 1 1 U.S.C. § 727(a)(5) for failing to
explain the loss of assets < >r deficiency of assets to meet her obligations, in particular, the
equipment purchased from Albany Restaurant.

Raised for the first time in a part of his opening brief labeled "Merger Agreement," the
Plaintiff contends NHO's bankruptcy was fraudulent. He does not, however, provide any
statutory or case law analysis to support this contention.

hi her response to the Plaintiffs openingbrief, the Debtor asserts the Plaintiff has not met
his burden of proof on any of the section 727 causes of action, including the gravamen of his
complaint, section 727(aX4). Regarding section 727(a)(2), she argues the Plaintiff has not
proven that any of her or NHO's property had been, or was permitted to be, transferred, removed,

-I

destroyed, mutilated, or concealed within one year before the date of filing with the intent to
hinder, delay, or defraud a creditor. According to the Debtor, the evidence shows any sale of an
asset was for fair consideration and the proceeds were used for her or NHO's legitimate
expenses.

Regarding section 7 27(a)(3), the Debtor contends the Plaintiff has submitted no evidence
of what "recorded inform at on" she concealed, destroyed, mutilated, falsified or failed to keep

8

from which her or KHO's financial condition or business condition might be ascertained. She

pieces referred to in those

asserts her uncontradicted; testimony and that of her mother are that 33 banker boxes of books
and records were provided to the parties in interest. According to her, she did not provide the
Plaintiff with an appraisal of the artwork because she had no such appraisal, thus, she had no
"recorded information.*'

The Debtor also contends the Plaintiff did not meet the requirements under sections

727(aX5) or 727(a)(7) because she cooperated in the NHO bankruptcy proceeding and

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satisfactorily explained the loss or deficiency of assets. To her, assets were not lost, rather, the

assets were the lease agreements she listed on the bankruptcy petition and not the equipment

lease agreements. She argues the Plaintiff has not submitted any

evidence that those assets vere worth any less at the time of filing than they were worth at the

time of the lease agreements* inception. For the Debtor, her testimony and that of one of the

Plaintiffs witnesses support a finding that approximately one month before the filing of the

petition, most of the equip: nent was on the former NHO premises after they were vacated, that

equipment was locked up ipd, later, a new tenant used it She asserts the equipment lessors did

little to retrieve and liquid; te the equipment post petition and contends the Plaintiff has not

produced any documentath m or other evidence demonstrating that she transferred, liquidated, or

otherwise disposed of any < if the leased equipment prior to the filing of the MHO petition- She

also contends he has not shown she received a benefit from such transfer, liquidation or

disposition. -
....

As for the PlaintifFj; main contention, bis section 727{aX4) argument, the Debtor begins
by challenging his interpretation of what happened at her section 341 meeting. She points out

9

that not only did the court admit the transcript of that meeting for the limited purpose of
impeachment, but even if it had been received as direct evidence, there is no evidence'her

statement, made while surrounded by several individuals, was made "knowingly" and

I

"fraudulently." She contends there is no evidence of a secret deal between her and her mother
which shows she retained a legal or beneficial right to the artwork, that hex mother gave her

anything other than fair value for it and that she used the proceeds for anything other than her

I

surgery and business's expenses. She cites CuUinan Assocs., Inc. v. Clements, 215 BJL 818
(WX>. Va,), ajfd, 131 F.3d 133 (4th Ctr. 1 997), and argues her mistaken statement is different
from the one the debtor made in Raymonda because in that case the debtor had sufficient time to
consider the simpler quest ons posed. In contrast, she asserts she did not have sufficient time to
consider all of the "in the 1st six years" questions she was asked. Furthermore, unlike the debtor

and used the. tools when he filed, the Debtor sold the artwork more
than a year prior to filing h a- petition and did not possess it when she did file.

Regarding the "Mi< hael" painting, the Debtor asserts her amended schedule was a
defensive move by her so that if she had any rights in the painting, those rights were disclosed
The Debtor's response to the Plaintiffs challenge regarding the "Mr. Shoes" transaction is that
the uncontradicted testimony shows the proceeds of the Hi-Step Enterprises, Inc. sale of its
assets, including the Mr. Shoes name, to Zylos, Inc. was for fair value and used to pay tax

entity. The Debtor contends the Plaintiffs papers acknowledge and
concede that she relied on | er attorney with regard to her deposition testimony regarding who
owned the "Mr. Shoes" trade name. Distinguishing Raymonda once again, the Debtor states she
never owned the trade name "Mr. Shoes" and argues that because the transaction involved two

10

in Raymonda who still had

creditors of that non-debtoi

non-debtor entities, it is BO| a matter which "includc[s] the debtor's business transactions and the
discovery of assets or the disposition of the debtor's property." She further argues the Plaintiff
has not submitted any expert opinion or documentary evidence which shows the values of the
corporations* stocks disclosed by her were worth anything other than zero. According to her, the
zero value of the stock was corroborated by Saltzman's failure to make an offer to purchase all

the entities* ownership interests.

ft

In his 7 reply brief, tie Plaintiff presents the court with a case law analysis that discusses
Raymonda in more detail and distinguishes the cases the Debtor relies oa in her opening brief.
Although he lists 19 areas where the Debtor "misrepresents, deletes or provides directly
contradicting testimony," overall he focuses on the Debtor's transfer and concealment of her
artwork and the "Mr. Shoe^" trade name and the absence and concealment of business

equipment (Plaintiffs Response to Defendant's Post-Trial Memorandum ("Response")

unnumbered p. 2.) In his
bankruptcy," arguing K [wji
and NHO bankruptcies

The Plaintiff also 4

oduction, be also contests the Debtor's right "to declare corporate
iut the forged, invalid Merger Agreement in place both the Natalie
edialely unraveL" (Response unnumbered p. 1.)

lenges the Debtor's explanation of the loss or deficiency of assets,
her characterization of the lj ases as assets, her offer to make them available to parties in interest,
her failure to provide a list J f every piece of equipment (leased or owned) and her representations
that either the new tenant or the landlord had the equipment Regarding the Debtor's assertion

'The pronoun the Plaintiff uses when referring to the party pursuing the objection to
discharge causes of action is "we." The convoluted format and content of Ms two briefs,
especially his "appendices" and his "supplements," make them extremely difficult to follow and
do not indicate who, if anyone, might be an additional plaintiff.

11

should go into the estate tc

that there is no proof that^Jbany Restaurant provided any equipment to her or NHO, he refers to
Exhibit 13, particularly the agent's finding regarding 75% of the equipment, not 100%. He
downplays the leasing coripanies* lack of action and the Debtor's inability to access the premises
once she filed and he argu< s that if the leasing companies had abandoned equipment, then it

pay the Debtor's creditors. He also argues Exhibit 9 supports a
finding that the Debtor's assets dropped from the $650,000 value she placed on them within a
year of filing.

Finally, the Plaintiff asks the court to take judicial notice of seven facts. He lists them in
a document labeled "Appendix C - Public Record Appendix.*

Discussion

I Validity of Ac MHO Petition

The Plaintiff did mjjt formally object to the filing ofNHO's petition until he challenged

1

their validity in his post trial briefs. Moreover, he neither substantiates bis argument with

I

uncontested facts nor provides supporting case law. Whil e the court often conducts its own
research when deciding issfies, it is certainly not responsible for making a party's prima facie
case, especially when mat party is represented by counsel. Thus, this issue will not be considered
by the court.

It Judicial Notice J

The Plaintiff also of d not ask the court to take judicial notice of seven "facts" until he
filed bis reply brief* AJthJugh the Federal Rules of Evidence provide for "mandatory' judicial

t When a plaintifX raises a new issue in a reply brief, the court usually allows the defendant
to file a brief addressing it | For reasons that will become apparent, the court did not allow the
Debtor to do that in this proceeding.

12

notice of adjudicative fectj | the request itself dees not merit serious consideration given the
Plaintiffs failure to supply the court with the necessary information. FED. R. Evnx 201(d).

Merely indicating "anyone can call or visit" is not sufficient when the burden of collecting the

I

information lies with the ijroponent, not the court, particularly when phone numbers or addresses
have not been provided.

Furthermore, at least one of the "facts'* cannot be ascertained by a mere phone call since

1

state taxing authorities ca^ot release taxpayer information in the absence of a proper judicial

I

order. See N.Y. TAX L. § jj?02. If the court followed the state law requirements and emertained
issuing an order, it would not execute oik without first providing the Debtor with an opportunity
to be heard. Also, although the federal rules allow for a request at any time, the timing of the
request seems to be part of the Plaintiffs answer to the challenges the Debtor raised in her brief,
i.e., his attempt to fix wba| he missed getting into evidence prior to the close of trial.

The court does not ihotd the Plaintiffs seven "facts" are "setf-evideni truths that no

1
I

reasonable person could question, truisms that approach platitudes or banalities." Hardy v,
Johm-Manvile Sales Corp., 681 F.2d 334, 347-48 (5th Cir. 1982). Accordingly, the request is
denied. '

HL Objections to discharge

As the court has al eady pronounced, the denial of a discharge is not only an extremely

drastic and harsh sanction, it is the death penalty of bankruptcy. Raymonda, at p. 4, like many

\

other objection to discharge adversary proceedings, the matter here involves two vifaTbankruptcy
maxims: the debtor's parar lount duty to fully and accurately prepare bis or her petition,
schedules and statements aind the Bankruptcy Code's purpose of giving a deserving debtor a fresh

13

start. Id.

While al! of the policy precepts of Raymonda apply to this case, a material factual
distinction between this ca se and Raymonda is that the Trustee has not asserted the Debtor failed
to disclose assets or other information on her bankruptcy petition or the NHO bankruptcy
petition. The individual challenging the Debtor's discharge is her former boyfriend. Although
be is a creditor of the Debt! >r, compared to the similar creditor bodies in the two cases, his claim
is very small. Moreover, u alike the more typical scenario of the Chapter 7 estate's fiduciary
objecting to a debtor's discharge, this matter smacks of a jilted fellow's attempt at revenge or
retaliation against Ms form ear girlfriend, with many attempts at tripping her up along the way.

After careful consideration of the entire record, wi th particular attention paid to the
Plaintiffs post trial briefs j Sid appendices, the court concludes the Plaintiff did not meet his
burden of proving, by a preponderance of the evidence, that the Debtor should not receive a
discharge,

A. 11 U.S.C. § 72|(aX2)

■ate

Bankruptcy Code § 727(a)(2) provides for the denial of a discharge if:

JTJhe debtor, with Intent to hinder, delay, or defraud a creditor or an officer of the
estate charged with custody of property under this title, has transferred, removed,
destroyed, mutilated, or concealed, or had permitted to be transferred, removed,
destroyed, mutilate J, or concealed — ,

(A) propat of the debtor, within one year before the date of the filing of
the petition; or

(B) property of the estate, after the date of the filing of the petition.

The Plaintiffs brie;
pursuant to § 727(aX2). Aj

does not contain any argument supporting an objection to discharge
for the Debtor's sale of her artwork, the Plaintiff did not offer any

14

testimony that the sale of it was for other than fair consideration or that the proceeds were used
for anything other than he or her business's legitimate expenses. Thus, any causes of action
based on it are dismissed.

B. 11 U.S.C. § IT (aX3)

Bankruptcy Code j 727(a)(3) provides for a denial of discharge if:

[T]he debtor has omcealed, destroyed, mutilated, falsified, or failed to keep or
preserve any recorded information, including books, documents, records, and
papers, from which the debtor's financial condition or business transactions might
be ascertained, unless such act or failure to act was justified under all of the
circumstances of the case.

Of course, sophisticated debtors are held to a higher level of accountability. In re Sethi,

250 B-R. 83 1 (Bankr. E.D N.Y. 2000). In the instant case, however, the Debtor has a ninth grade

education and, prior to her involvement with the Plaintiff, the extent of her business practice was

i

selling fruit baskets from her home. As already found, the uncontradicted testimony was the
parries in interest received but have yet to return, 33 banker boxes of books and records,
including corporate and personal tax returns, bank statements, business checks, personal checks,
. corporate books and Quid book reports. Although the Debtor did not provide the Plaintiff or the
Trustee with an appraisal of the artwork, she did not do so because she did not have one. Unlike
the tax returns and the books and records she was required to keep according to federal and state
law, the Plaintiff has not « nvinced the court that the Debtor was required to obtain and retain an
appraisal. Thus, he has fai ed to prove a section 727(aX3) cause of action.

C. 11 U.S.C. § 727 >X4) ~ ■

The gravamen of the Plaintiffs objection is based on Bankruptcy Code §727(a)(4).
Section 727(aX4) provides for a denial of discharge if:

15

[TJhe debtor knowingly and fraudulently, in or in connection with
the base-

(A) made a false oath or account;

(B) presented or used a false claim;

(C) | gave, offered, received, or attempted to obtain money,
property, or advantage, or a promise of money, property, or
advantage, for acting or forbearing to act; or

(D) withheld from an officer of the estate entitled to possession
under this title, any recorded information, including books,
documents, records, and papers, relating to the debtor's
property or financial affairs.

As the statute provides, the false oath or account must be both knowingly and fraudulently made

and it must relate to a material matter, including the debtor's business transactions and the

discovery of assets or the disposition of the debtor's property. See In re Murray, 249 BJR- 223

(EJD.N.Y. 2000).

The Plaintiff argues (he Debtor left several items off Of her petition, schedules and
statements. They are treated in greater detail below:
h The Artwork

The Plaintiff asserts the Debtor lied about artwork she either owned when she filed or
transferred within six years of filing on several occasions. Each occasion is addressed below:
a. The Meeting pfjCreditors

The Plaintiff asserts the Debtor did not disclose the transfer of artwork at her § 341
meeting. To start, the transcript of the meeting was admitted for the sole purpose of
impeachment, not as direct evidence. Even if the court accepted it as direct evidence, the
Plaintiff does not point to any evidence to show her statement, made while surrounded' by as
many as 1 1 individuals, was made knowingly and fraudulently. There is no evidence the Debtor

made any unusual transaction or deliberately covered her tracks, no evidence of a secret deal

16

between her and her motl
evidence her mother gave

;r where shejetained a legal or beneficial right to the artwork and no
the Debtor anything but fair value for the artwork. The Plaintiff has

not even supported his co ltention that the Debtor will inherit the art under her mother's will.

As for the proceed s the Debtor and her mother say she received, the only evidence in the
record regarding them is t k Debtor used them for her surgery and NHO's business expenses.
The Debtor's confusion, i ervous state or misunderstanding of the compound question she was
asked at the section 341 n eetings does not support a determination that a fraudulent *
misrepresentation occurrep. See CuIUnan Assocs., Inc., 215 BJR- at 821 . The context of the
Debtor's "statement" is different from the debtor's in Raymonda. Here, the Debtor was not
asked straightforward questions like "do/did you own paintings?" and "where are they now?"

Rather, the series of questions asked involved broad, legally-worded queries which required the

I

Debtor to recall "transactions" involving art and numerous other assets she allegedly owned

during the six years prior fo fifing. The line of questioning prompted her attorney to ask

1|

clarifying questions. Giv4a the context, especially Rudin's interruptions and involvement, the
court does not infer fraudi lent intent by the Debtor. See Murray, 249 B.R. at 228.

b. The Schedules and Amended Schedules

The same rationale applies with regard to the Debtor's Amended Schedules. The Debtor
did not disclose fee exists ice of any artwork until she filed her Amended Schedule B, however,
her credible testimony regUdmg the amendment is that she filed it to reflect the existence of the
"Michael" painting, i.e., a t belonging to her son. Furthermore, the Plaintiff has failed to prove,
by a preponderance of the rvidence, mat she actually owned artwork when she filed.

c. The January 20<;O Affidavit (Exhibit 7)

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* *

• • • ■

Although the Debtor's otherwise fairly credible story is once again supported by Exhibit
7, her January 2000 affida it, Exhibit B arguably compromises it In her affidavit she swears the
artwork she sold in 1998 was only worth $500. However, Exhibit B, the promissory note
between herself and her m Mher, and the testimony of the Debtor and her mother indicate she
might have received as much as $10,000 for it

To the court, if in her affidavit the Debtor had stated she had received $500 instead of
stating what (he value of the artwork was worth when she transferred it, the weight of the
evidence behind the promissory Dote would have created quite a significant discrepancy in her
story. Without the "received" statement, however, the court views the promissory note as
evidence that the Debtor'simotber paid approximately $9,500 too much for the artwork, in effect,
gifting the Debtor that moi ey so she could pay for her surgery. Due to the lack of any evidence
in the record evidencing the various paintings and lithographs had a higher value when the

in exchange for money for her medical and business expenses, the
court does not find she lie<j| in that affidavit Thus, Exhibit 7 does not support a section 727(a)(4)
determination.

2. The "Mr. Shoes Pizza" Trade Name

To the court, the oily evidence the Plaintiff has to support a denial of discharge pursuant

Debtor transferred it to ho

ten

to section 727(aX4) centenj on the trade name "Mr. Shoes Pizza." As already found, the Debtor
filed an affidavit dated January 28, 2000 in which she swore that Hi-Step Enterprises, her sole
corporation, "never owned* the Mr. Shoes Pizza trade name. Yet, the Asset PurchasYAgreement
between Hi-Step and Zylosi even with its effective date discrepancy, reflects a sale of Hi-Step's

assets to her mother's cor

ration, including that trade Dame. That agreement supports a finding

18

DJL 799, 805 (NJ>.N.Y.
ND.N.Y. 1998) and In re\

that the Debtor's affidavit contained a false statement about an asset her non-debtor corporation
owned.

Meeting section 727(a){4)'s requirements that (1) the debtor made the statement under
oath and (2) the statement was false, however, does not end the inquiry. See In re Martin, 208

997); Raymonda, p. 5 (citing In re Scott, 233 B.R. 32 (Bankr.
« Kelly, 135 BJL 459 (Bankr. S.D.RY. 1992)). The Plaintiff also has to
prove criteria three through five, namely: (3) the debtor knew the statement was false; \A) fee
debtor made the statement with fraudulent intent; and (5) the statement related materially to the
bankruptcy. Id. According to the Second Circuit, testimony given "knowingly and fraudulently"
means nothing more than fan intentional untruth in a matter material to the issue which is itself
material." In re Melnick, j360F.2d 918, 920 (2d Cir. 1966)(citkig//i re Slocum, 22 F.2d 282, 285

If

(2d Cir. 1927)).

To the court, the Debtor knew her May 2000 "never owned" statement was false when
she made it Of course, a debtor is unlikely to admit to an intentional false statement, therefore,
the creditor may prove "knowledge" for purposes of section 523(a)(4XA) by proving the debtor
acted with reckless disregard for the truth. In re Scott, 233 B.R- at 44 (citing In re Chovin, 150
E3d 726, 728 (7th Cir. 19)8)). Here, while it is true the Debtor's attorney and not the Debtor
hersell answer eo esseafraay tfi'Sitfc ^^t^^ps^a^^^^^Efei!^ dtths. -%4t. .S&oet Pfeaa.
trade name during the April 24, 2000 deposition, the court finds the Debtor knew her January 28,
2000 affidavit contained die false statement when she signed it based on the extent "6T the
documentation involved wath the sale of that trade name and her ownership of Hi-Step. The
court cannot find the Debtor, as sole owner of Hi-Step and the one who executed the sale

19

documents on its behalf a i president, did not know Hi-Step owned the Mr. Shoes Pizza trade
name approximately one nonth before she filed. In light of the timing of the sale and the
documentation behind it, iny denial of knowledge by her would be both internally inconsistent
and implausible and a reasonable factfinder would not credit it. See In re Chavin, 150 F.3d at
728.

Even a defabcratel / false statement, however, may not support a denial of discharge under
section 727(a)(4) since th s debtor must have also made the statement fraudulently. In re Scott,
233 B-R. at 44, Because ft is difficult to prove directly, courts have allowed creditors to prove
fraudulent intent using circumstantial objective evidence. Id. (citing In re Devers, 759 F_2d 75 1,
754 (9th Cir. 1985)). Whether the debtor derived a benefit or the creditor a detriment is often

one of the most important circumstantial factors to consider. Id. (citing In re Agnew, 81 8 F.2d

<

1284, 1287 (7th Cir. 1987 1), As a result, courts may consider materiality as a proxy for
fraudulent intent Id. (dti ig In re Ckavin, 150 F.3d at 728).

Here, the circumstantial evidence persuades the court that the Debtor did not have the
requisite fraudulent intent. The Debtor's story is the proceeds of the sale constituted fair value

and were used to pay H^-Step's tax creditors. Although the Debtor did not provide any

~* I!

documentation to support -that, the Plaintiff's only challenge to it is based on information that is
not part of the record, i.e., Appendix C - Public Record Appendix Fact #1. Furthermore, the
court finds the Debtor heavily relied on Rudin when testifying that the Mr. Shoes Pizza trade
name did not belong to Hi-Step. In fact, Rudin himself "testified" on quite a numbeTTSf
occasions during the Debtor's depositions.

Despite the Plaintiffs analogy, his prima facie case is not at all like the one the trustee

20

documents on its behalf a$ president, did not know Hi-Step owned the Mr. Shoes Pizza trade

name approximately one
documentation behind it,

i nonth before she filed. In light of the timing of the sale and the
( my denial of knowledge by her would be both internally inconsistent
and implausible and a rea ;onable factfinder would not credit it See In re Chavin, 150 F.3d at
728.

Even a deliberate] / false statement, however, may not support a denial qf discharge under
section 727(a)(4) since th ; debtor must have also made the statement fraudulently. In re Scott,
233 B.R. at 44. Because i t is difficult to prove directly, courts have allowed creditors to prove
fraudulent intent using cii sumstantial objective evidence. Id, (citing In re Devers, 759 F.2d 75 1,
754 (9th Cir. 1985)). Whether the debtor derived a benefit or the creditor a detriment is often
one of the most important circumstantial factors to consider. Id. (citing In re Agnew, 81 8 F.2d

i

1284, 1287 (7th Cir. 1987ft). As a result, courts may consider materiality as a proxy for
fraudulent intent Id. (citing In re Chavin, 150 R3d at 728).

Here, the ciicuinst mtial evidence persuades the court that the Debtor did not have the

requisite fraudulent intent. The Debtor's story is the proceeds of the sale constituted fair value

I

and were used to pay Ha-£|ep's tax creditors. Although the Debtor did not provide any

documentation to support
not part of the record, i.e.,

that, the Plaintiff's only challenge to it is based on information that is
Appendix C - Public Record Appendix Fact #1 . Furthermore, the

court finds the Debtor heayily relied on Rudin when testifying that the Mr. Shoes Pizza trade
name did not belong to Hi^jStep. In fact, Rudin himself "testified" on quite anumbSTof
occasions during the Debtee's depositions.

Despite the Plaintiffs analogy, his prima facie case is not at all like the one the trustee

20

presented in Raymonda. 1 here, in addition to all the contradictions and inconsistencies, when

questioned by the trustee & I his. adjourned § 341 meeting, the debtor was, as conceded by his own

attorney, slow to disclose the existence of the tools. Raymonda at p. 7. Later, when testifying in

court during the trial, the debtor readily admitted the trustee would never have found out about

the tools if his ex wife had not noted their existence. Id. On the other hand, the Plaintiffs prima

facie case did not leave the court with the same flippant, teeth pulling impression of the debtor

that the trustee's presentati on in Raymonda did. See id. at p. 8.

Furthermore, in Raymonda, the debtor retained the use and benefit of the assets he owned.

Raymonda, at p. 5. Here, j(he Debtor herself never owned the trade name Mr. Shoes Pizza. Her

asset, the stock of Hi-Stepj was disclosed on ber schedules and valued at zero. Even though she

produced boxes of information, the Plaintiff did not produce an expert valuation or any other

i

evidence to show that her took was worth anything other than zero.

Although courts have inferred fraudulent intent from circumstantial evidence, the
warrant such a holding. See In re Freudmann, 361 F.Supp.
affd, 495 F.2d 816 (2d Cir. 1974). The Second Circuit has

circumstances here do not
429,433 (S.D.N.Y. 1973),

determined the following circumstances constitute ''badges of fraud":

(1) the lack or inadequacy of consideration;

(2) the family, friendship or close associate relationship between the parties;

(3) the retention of possession, benefit or use of the property in question;

(4) the financial condition of the party sought to be charged both before and after
the transaction in question;

(5) the existence or cumulative effect of a pattern or series of transactions

or course of conduct after the incurring of debt, onset of financial difficuJticS7*or
pendency or threat jof suits by creditors; and

(6) the general chronology of the events and transactions under inquiry. In re
Kaiser, 722 F.2d 1 $74 (2d Cir. 1 983)(citing In re May, 12 Bit. 618 (Bankr. NJ>.
Fla. 1980)).

21

Based on the findii gs and determinations already made, the court concludes the Plaintiff
has not shown what badges of fraud exist here. Although the transfer was from the Debtor's
corporation to her mother's corporation, the record does not contain any evidence to support a
finding that either individual treated her corporate business as her own thereby deriving a
persona] "benefit" from th ; transact] on.

Finally, the court n cognizes once the creditor shows an intentional falsehood, "the
burden falls upon the debtor to come forward with evidence that it was not an intentional
misrepresentation. If the debtor fails to provide such evidence or a credible explanation for his
failure to do so, a court may infer fraudulent intent'" Raymonda, at p. 7 {quoting In re Murray,
249 B.R- at 228). The court accepts the Debtor's explanation that ber mother's corporation
purchased the trade name Is part of a larger sale and, based on the absence of any evidence to the
contrary, paid sufficient consideration for it Therefore, the Debtor has rebutted the inference of
fraudulent intent Murrayl\249 BJL at 228.

The egregious facts! in Raymonda simply do not exist here. The lack of evidence coupled

with the Debtor's attorney
personal and business life.

s apparent role in her business and her mother's role in both her
leads the court to conclude that what the Debtor "intended," if

anything, was to obtain money for her non-debtor business 's assets and to place the trade name
"Mr. Shoes Pizza" back into her mother's business where she had always been told it belonged.

: Irii

Having received no direct or indirect benefit, the court does not conclude she btendecf to defraud

jj

her creditors, thus, the causes of action based on § 727(a)(4) are also dismissed.
D. 11 U.S.C. § 727XaX5)

22

*

Bankruptcy Code §j 727(a)(5) provides for a denial of discharge if:

[TJfae debtor has failed to explain satisfactorily, before determination of denial of
discharge under this paragraph, any loss of assets or deficiency of assets to meet
the debtor's liabilities.

The Debtor has satisfactorily explained the loss of assets or deficiency of assets. The
Plaintiff is apparently confused as to what constitutes an asset of a bankruptcy estate. Since the
equipment was leased by tile Debtor and/or her corporations, the personal property itself would
not constitute estate prope ty. The leases, however, would. In general leases of personal
property do not have much, if any, value, thus, the court would not necessarily view a debtor's
mistake in not listing them on a Schedule B as fatal to receiving a discharge.

Given the Debtor's production of 33 boxes of personal and business records, there is
nothing in the record to suggest she did not provide all the recorded information of her and
NHO's business transactic is. Furthermore, the Plaintiff has not submitted any evidence that the
equipment leases were wofth less at the time of filing than they were worth at the time of
inception of the lease agreements.

Even if the court assumed the assets consisted of the equipment as opposed to the lease
agreements, the Debtors i acontradicted testimony was that approximately one month before the
filing of the petition, the ec uipment was locked upon the premises. Although they are favorable
to the Debtor's side of the story in large part, the court perceives all of the testimony from the
equipment lessors as nothing more than solicitations by the Plaintiff to provide one or two
sentence statements withoi t substantiation or explanation. If the equipment lessors "Bad
determined the Debtor had violated their rights, why not exercise their own rights under state law
prior to her bankruptcy filing and/or under the Bankruptcy Code after she filed? The court has

23

also been left with the impression that the Plaintiff himself assisted in the acquisition of
equipment and that he managed and controlled the businesses' day-to-day operations, at least
until the day he and the Debtor parted company. If that is true, then arguably, be contributed to
any diminution in value.

Finally, the Plaintiff has not provided any evidence that there was a loss or deficiency of
assets prior to the Debtor and NHO filing bankruptcy petitions. He has not produced any

i

documentation or other evidence demonstrating the Debtor transferred, liquidated or otherwise
disposed of any of the leased equipment prior to the filings or received a benefit from a transfer
or disposition. The only evidence offered is the Debtor's and some of the equipment lessors'
testimonies that the landlord possessed the equipment post petition. Thus, the court concludes
the Plaintiff has not met his burden of proving a section 727(a)(5) cause of action.
E. 1 1 U.S.C. § 727(a)(7)

Bankruptcy Code m 727(aX7) provides for a denial of discharge if:

[T]he debtoi has committed any act specified in paragraph (2\ (3), (4), (5), or (6)
of this subsection, on or within- one year before the dale of the filing of the
petition, or during the case, in connection with another case under this title or
under the Bankruptcy Act, concerning an insider.

The provision was designej 1 to induce the cooperation of individuals in related bankruptcy cases.

See In reKrehl, 86 F.3d 73j7 (7th Cir. 1996). Section 727(a)(7) binds '"related cases together so

that misconduct in one case by an individual may be chargeable against that individual in other

related proceedings.'" bi A Transp. Mgmt Inc., 278 B Jt 226, 238 (Bankr. M.D. Ahu

2002){quoting Whiteside F S., Inc. v. Siefldn, 46BJL 479, 480-81 (NX), ffi. 1985). Thus, the

section acts to prevent debtors who are involved in several bankruptcy proceedings from failing

24

to cooperate in proceedini ,s in which their discharges are not at issue, and then, subsequently or

« i i

simultaneously, obtaining individua] discharges in their own cases. Id.

As the court has f< und, above, the Debtor cooperated with the Trustee in theNHO
bankruptcy case. She evtn tamed over boxes of information to creditors. Thus, the Plaintiff has
not sustained his burden cjf proof on his section 727(aX7> cause of action.

Accordingly, it is

ORDERED that the Plaintiffs objections to the Debtor's discharge are overruled and the
Debtor shall receive her discharge forthwith.

Dated:

Albany, N« sw York

Honorable Robert E. Littlcficld, Jr.
United States Bankruptcy Judge

25

• 1

CERTIFICATE OF MAILING

The undersigned deputy clerk of the United States Bankruptcy Court for the
Northern District of New York at Albany, hereby certifies that a true copy of the attached
document was mailed this date to the following parties at the addresses shown:

U.S.Truslee
74 Chapel SL

Albany, NY 12207

James P. Trainer, Esq.
The Trainer Law Firm LLC
636 Plank Road
Ste 108

Clifton Parle, NY 12065

Christian H. Dribusch, Esq.
Dwyer & Dribusch, LLP
350 Northern Blvd.
Albany. NY 12204

Ton! F. Natalie
20 Anchor Drive
Waterford. NY 12186

Gregory Harris, Esq.
The Palroon Bidg.
5 Clinton Square
Albany, NY 12207

The mailing was deposited in a regular United States mailbox in the city of Albany,
i York. i ' *J

LB

Date:

nolantryduWan
eUsamg (SW)